Confused by your bank or broker? Understand what is meant by "stop loss order", "rollover", "floating exchange rate" and more with this currency conversion jargon guide...

Below are some examples of the terminology that might be used when looking at the currency markets and dealing with foreign currency brokers.

Bid

The rate at which a dealer is willing to buy the base currency

Broker

A broker is a middleman acting between a client and a market maker. A broker will charge a commission for their services

Convertible Currency

Currency which can be freely exchanged for other currencies or gold without special authorisation from the appropriate central bank.

Exchange Rate Depreciation

Currency which loses in value against one or more currencies

Exchange Rate Risk

The potential loss that could be incurred from an adverse movement in exchange rates

Fixed Exchange Rate

Official rate of exchange set by monetary authorities for one or more currencies. In practice, some fixed exchange rates are allowed to fluctuate between defined upper and lower bands

Floating Exchange Rate

When the value of a currency is decided by supply and demand

FOREX/FX

An abbreviation of Foreign Exchange

Forward Points

The Interest Rate Differential between two currencies expresses in exchange rate points. The forward points are added or subtracted from the spot rate to give the forward or outright rate

Forward Rates

The rate at which a foreign exchange contract is struck today for settlement at a specified future date

Forward Contract

Contract struck at the forward rate as specified above.

Hedging

A hedging transaction is one which protects an asset or liability against a fluctuation in the foreign exchange rate.

Initial Margin

The deposit required from a client when they transact a forward order

Interbank Rates

The FX rates large international banks quote other large international banks. The difference between the buy rate and the sell rate, the spread can be around 0.07%. Normally the public and other businesses do not have access to these rates.

Interest Rate Risk

The potential for losses arising from changes in interest rate

Limit Order

An order given which has restrictions upon execution. The client specifies a price and the order can be executed at the prevailing market price only if the market reached the specified price

Margin

Cash deposit provided by clients as collateral to cover losses (if any) that may result from the client’s foreign exchange trades

Margin Call

A demand for additional funds to cover positions

Maturity

Date for settlement

Offer

The rate at which a dealer is willing to sell the base currency

Open Position

Any deal which has not been settles by a physical payment or reversed by an equal and opposite deal for the same value date

Outright Forward

Foreign Exchange transaction involving either the purchase or the sale of a currency for settlement at a future date

Outright Rate

The forward rate of a foreign exchange deal based on the spot price plus or minus the forward adjustment which represents the difference in interest rates between the two currencies

Resistance

A price level at which you would expect selling to take place

Rollover

Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies (eg. next day)

Settlement

Actual physical exchange of one currency for another between principal and client

Spot contract

Spot means the settlement date of a deal which is two business days forward

Spread

The difference between bid and offer prices

Stop Loss Order

An order to buy or sell when a particular price is reached either above or below the price that prevailed when the order was given

Support Levels

A price level at which you would expect buying to take place

Technical Analysis

Analysis based on market action through chart study, moving averages, volume, open interest, formations and other technical indicators